Enlarge This ImageWells Fargo & Co. decided to exit reverse mortgages after federal officials insisted it foreclose on elderly customers who were behind on property tax and insurance payments, a Wells executive wrote in an email to business contacts Friday.
The San Francisco bank had other reasons to shut its 1,000-employee reverse mortgage unit. The industry's lack of growth, declining housing prices and other issues have reduced its draw for major lenders, prompting other market leaders such as Bank of America Corp. and Financial Freedom Acquisition LLC, a unit of OneWest Bank Group LLC, to pull out as well. The business is simply not central to the mortgage operations of Wells and others.
But the pullout occurred after a disagreement between Wells and the Department of Housing and Urban Development came to a head, Phil Bracken, an executive vice president of Wells Fargo Home Mortgage, wrote in the email. Wells was worried that HUD would force it to foreclose on senior citizens with delinquent reverse mortgages insured by the Federal Housing Administration, according to a copy of the message obtained by American Banker.
"The last straw in our decision was the recent HUD decision to require servicers to initiate foreclosure on the Senior Reverse Mortgage customers [who] could not pay their taxes and insurance," the email said. "When a product or program creates more reputation risk than value … well … you get the picture."
Under a reverse mortgage, homeowners must continue paying property taxes and insurance premiums. If they lack the money, the lender makes the payments for at least two years while attempting to work out a repayment plan. In the event that fails, the lender is then supposed to seek authorization from HUD to begin proceedings that lead to foreclosure.
HUD declined to comment on Wells' decision to exit the business, and Bracken did not respond to requests for comment.
A Wells spokeswoman attributed the move to a more general concern over the bank's inability to assess whether a senior could afford homeownership, even with a reverse mortgage.
"That, I would say, was much more of concern than anything else," the spokeswoman said. "We were talking to HUD, and looking for ways to revise the program. We decided to discontinue these originations because we felt we'd exhausted our options."
Industry participants said that Wells departure was regrettable.
"We're hoping that the news of Wells announcement will serve as a call to action to expedite the department concluding work on" rule changes, said Peter Bell, head of the National Reverse Mortgage Lenders Association.
Wells' departure was unwelcome news for the industry at large.
"Nobody who wants to be in the reverse mortgage space is going to be helped by Wells withdrawing," said David Kittle, a former chairman of the Mortgage Bankers Association who now works for the mortgage auditing firm IMARC LLC. "The optics are, 'Oh, my God, Wells is getting out. What's wrong?' "
While the industry has generally grumbled about the FHA's failure to adapt its reverse mortgage guarantee program in the wake of the housing collapse, the reverse mortgage market's disappointing growth and HUD restrictions on cross-selling of reverse mortgages may also have influenced Wells' decision. The Wells spokeswoman said they were not significant concerns.
But there was no denying that expectations for the market are much lower than they used to be. As recently as mid-2009, Wells executives such as Peter Katsaros in Wells' Senior Products unit told Retirement Income Reporter that reverse mortgages were certain to be a winner because of the imminent wave of retiring baby boomers.
